Building hope on pricey rentals

The Kensington offers apartments that cost up to $11,325 monthly, but there’s some question whether the Hub has enough wealthy people to lease the building’s 381 units plus 6,000 other pricey rentals in the pipeline.

“We’re not New York,” said John Ford, owner of Beacon Hill’s Ford Realty. “We don’t need any more $5,000-, $10,000- or $30,000-a-month apartments.”

Slated to open in stages between August and October at the edge of Downtown Crossing and Chinatown, the $170 million Kensington offers posh apartment living in the heart of the city. Rents start at $2,910 a month for a 550-square-foot one-bedroom, but include 24/7 concierge service, a rooftop pool, and an on-site fitness center.

“We’re really bringing something new to Boston in terms of amenities, services and finishes,” said Keri Walker, regional vice president for The Bozzuto Group, which is overseeing the Kensington’s leasing efforts.

Built by Boston’s Kensington Investment Co., Newton-based National Development Corp. and equity partner Northwest Mutual, the project is aimed at young professionals, graduate students and suburban empty nesters.

Originally envisioned as a condo complex in the mid-1990s, the development team switched to apartments when the housing market tanked about a decade later.

Walker is convinced young professionals will appreciate maintenance-free living, while ex-suburbanites will like the opportunity to try city life without locking into a mortgage.

So far, Bozzuto has found tenants for four units since opening a leasing office on April 1. Walker said that’s “good so far” given that the building is still under construction and Bozzuto can’t yet show tenants actual apartments, just a mockup in the complex’s sales office.

“We’re averaging a lease a week, and we do anticipate (marketing) will be easier once we can start showing people the building itself,” she said.

By way of comparison, AvalonBay Communities (NYSE: AVB) has begun construction on a $170 million, 400-apartment development in the Theatre District, while The Drew Co. recently topped off the $120 million, 236-unit Waterside Place in the Seaport.

Developers are scrambling to build new complexes because an improving local economy and years of no new construction have left Boston with a major luxury-apartment shortage.

Market tracker Reis recently found that the Boston Class A apartment sector had just a 4.5 percent vacancy rate at the close of last year, down from the 8.2 percent seen in early 2007 before the recession hit.

Shortages are even more acute in Back Bay and Beacon Hill, which had just a 3.2 percent vacancy rate at the end of the fourth quarter. That’s nearly half the 6.2 percent rate seen in early 2007.

Rents are rising in response. For example, Reis found that Back Bay and Beacon Hill average monthly apartment rents increased 4.9 percent during 2012 to $2,740 as of year’s end. Developers believe that means tenants will flock to new high-end projects even though firms plan to charge more than many Hub condo owners pay each month for mortgages.

“I don’t think buyers and renters are the same target market,” said Harry Nash, president of Kensington Investment’s real estate group.

But high-end real-estate brokers think Boston doesn’t have as many rich renters as builders think.

“Developers are all running their numbers based on today’s high rents, but I don’t think current prices are sustainable,” said Michael Doherty, a partner at Back Bay’s Citylife Real Estate. “Demand is not going to keep pace with all of the new supply that’s coming online.”

Michael Roberts, vice president of development at AvalonBay, admits that’s a valid concern.

But he believes builders can adapt if a glut develops by switching projects still in the planning stages from apartments to condos.

“The rental-housing market is pretty efficient,” he said. “Developers will adjust over the long term if necessary.”